October data suggests pain ahead for UK economy By Chris Tracey, investment director If ever t...
October data suggests pain ahead for UK economy
By Chris Tracey, investment director
If ever there was an example of a two-tier economy, it is the UK with manufacturing remaining firmly in recession (September production fell by 1.6% month on month) and consumer instalment credit rising by 12.9% at an annual rate over the same month. The current savings ratio, at 4.9%, compares with the average in the mid-1990's of nearer 11%, and clearly one of the concerns of the Monetary Policy Committee has been that further cuts in interest rates, already at their lowest level for 37 years, would simply encourage the consumer but do little to help manufacturing. Indeed, third quarter GDP growth at an annual rate of 2.2% was well ahead of expectations. But in October there appears to have been a sea change, with the CBI's survey of retailers suggesting that spending had slumped as the service sector started to retrench and there is evidence that house prices have started to fall.
Therefore, although the UK economy has stood out within Europe as being the most resilient it is by no means certain whether that will remain the case. Indeed, a yield ratio of very close to 1.5, seen only at times of extreme crisis, does suggest that equity valuations, at least against gilts, are not looking for a speedy profits recovery nor, obviously, are gilts suggesting any inflation threat. In current conditions we are happy to remain overweight UK equities but a significant move has been to reduce gilts in favour of high quality corporate bonds.
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation